2021 (11) TMI 682 - HC - Income Tax

Employee entitled to TDS credit under Section 192 despite employer's non-deposit; department must return adjusted recoveries with interest

HC held that an employee is entitled to credit for TDS on salary deducted by the employer even if the employer failed to deposit the tax; the department ... Credit of tax deducted at source - protection of deductee against recovery where tax has been deducted but not deposited - deductor deemed an assessee in default under Section 201 and liable for recovery - non-liability of assessee to pay tax to the extent deducted under Section 205 - precedential reliance on Om Prakash Gattani and Devarsh Pravinbhai PatelCredit of tax deducted at source - protection of deductee against recovery where tax has been deducted but not deposited - deductor deemed an assessee in default under Section 201 and liable for recovery - non-liability of assessee to pay tax to the extent deducted under Section 205 - Whether the petitioner is entitled to credit of TDS on salary deducted by the employer for AY 2009-10 and AY 2011-12 despite the employer's failure to deposit the amounts with the Central Government, and whether recovery proceedings against the petitioner are permissible. - HELD THAT: - The Court held that the factual matrix is not in dispute and is covered by earlier decisions of this Court and the Gauhati/Bombay High Courts. Applying the principle in Om Prakash Gattani and the subsequent decision in Devarsh Pravinbhai Patel, the Court reiterated that where tax has been deducted at source by the employer, the deductee should not be subjected to recovery proceedings for the same tax merely because the deductor failed to deposit the amount. Section 201 treats the deductor as an assessee in default and permits recovery proceedings against the deductor; Section 205 prevents calling upon the assessee to pay tax to the extent the tax has been deducted. While credit under Section 199 may strictly follow deposit, those provisions together protect the deductee from being doubly saddled. In view of the identical facts, the department cannot deny the benefit of TDS to the petitioner for the relevant years; credit must be given and any sums adjusted or recovered in the interregnum must be returned with statutory interest. The Court noted that proceedings may continue against the employer, but that does not justify refusing credit to the petitioner or pursuing recovery against him. [Paras 7, 9, 11]Petitioner is entitled to credit of the TDS deducted by his employer for AY 2009-10 and AY 2011-12; the department is precluded from denying such credit and must refund any amounts improperly recovered or adjusted with statutory interest.Final Conclusion: Petition allowed; credit of TDS deducted by the employer for the specified assessment years shall be given to the petitioner and any recovery or adjustment made in the interim shall be refunded with statutory interest within eight weeks; proceedings, if any, may be continued against the employer. Issues Involved:1. Non-deposit of Tax Deducted at Source (TDS) by the employer.2. Recovery notices issued to the petitioner.3. Petition under Article 226 of the Constitution.4. Entitlement to TDS credit and refund.Issue-Wise Detailed Analysis:1. Non-deposit of Tax Deducted at Source (TDS) by the employer:The petitioner, a pilot formerly employed by Kingfisher Airlines, had TDS amounts of Rs. 7,20,100/- for the Assessment Year 2009-10 and Rs. 8,70,757/- for the Assessment Year 2011-12 deducted from his salary. However, these amounts were not deposited by the Airlines into the Central Government Account. Consequently, when the petitioner claimed credit for these TDS amounts, the respondent did not grant the credit and raised a demand with interest.2. Recovery notices issued to the petitioner:Aggrieved by the non-credit of TDS and the subsequent recovery notices dated 19.11.2013 and 21.08.2014, the petitioner approached the Court seeking cancellation of the outstanding demand and recovery notices. The petitioner argued that the obligation to deposit TDS lies with the employer and should not be imposed on him.3. Petition under Article 226 of the Constitution:The respondent, in their affidavit-in-reply, contended that the petition under Article 226 could not be maintained as the petitioner failed to disclose any violation of statutory or constitutional rights. They also argued that the petitioner should have joined Kingfisher Airlines as a necessary party and highlighted the delay in filing the petition.4. Entitlement to TDS credit and refund:The Court noted that the factual matrix was not disputed and referred to the precedent set in the case of Devarsh Pravinbhai Patel vs. Assistant Commissioner of Income Tax Circle 5(1)(1), where a similar issue involving a Kingfisher Airlines employee was resolved. The Court reiterated the principle from the Bombay High Court's decision in Assistant Commissioner of Income Tax and Others vs. Om Prakash Gattani, which held that the responsibility to deposit TDS lies with the employer, and the assessee should not be penalized for the employer's failure to deposit the deducted tax.The Court emphasized Section 205 of the Income-tax Act, which precludes the department from recovering tax from the assessee if TDS has been deducted but not deposited by the employer. It was held that the department should recover the tax from the employer and not the assessee.Judgment:The Court allowed the petition, directing that the petitioner is entitled to the credit of TDS for the respective years. If any recovery or adjustment had been made by the respondent, the petitioner is entitled to a refund with statutory interest within eight weeks from the date of receipt of the order. The Court also noted that proceedings against the employer had been initiated. The petition was accordingly disposed of.